Binary Options – Cysec
A financial instrument that investors can trade is binary option which does not require an additional license in order to be traded. Cysec has included trading of binary options in the scope of Investment Services and Related Activities Law
There are five models that can be used in order for businesses to offer Binary options. The Market Maker model, Broker to the Market Maker that can hold client’s funds, Broker to the Market Maker that cannot hold clients funds. The three mentioned model are considered as Cyprus Investment Firms. The other two models are Tied Agent to Market Maker Model and Business introducer to the Market Maker Model.
If a Cyprus investment firm is authorized as a market member it needs to provide at least the following cervices
- Reception & Transmission of orders in relation to one or more financial instruments
- Orders executions on behalf of clients
- CIF dealing on own account
- Foreign Exchange
The CIF that acts as a Market maker needs to have an initial capital of 730 thousand euros.
Market maker company need to operate on an internet based trading system that will provide options to clients to trade the binary options at the prices that will be set by the market maker itself.
The market maker shall operate an internet based trading system which will enable clients to trade in binary options at prices defined by the market maker itself. The market maker will act as the counterparty in clients’ transactions assuming the exposure to market risk. Clients can be other financial institutions or retail clients.
Broker to the Market Maker that can hold clients’ funds
The Cyprus investment firms needs to have the services of reception and transmission of clients’ orders and execution of orders and will also hold clients’ funds.
Broker to the Market Maker that cannot hold clients’ funds
In this model the CIF can have only the service of reception and transmission of clients orders. CIF cannot hold customers funds. In this model the CIF needs to have an initial capital of 50 thousand Euro.
The CIF can appoint a third party agent that will be able to provide investment and transmission orders of clients on behalf of the CIF. The tied agent is not allow to receive or hold clients funds. A tied agent can be any legal person registered in Cyprus that has under its employment any individual that registered to provide services of reception and transmission of clients orders. A tied agent is appointed exclusively for the specific market maker / broker
Services that may be provided by the Tied Agent are the following:
- Reception and transmission of clients’ orders
- Promotion of Company’s services
- Attraction of clients for marketing purposes
Furthermore the market maker of broker CIF can cooperate with natural or legal person that can provide marketing services and introduce clients to the CIF. The introducer and the maker/broker CIF need to sign a Business Introducer Agreement stating that under no circumstances the Business Introducer might act as a tied agent or broker of the CIF. The business introducer can be an existing client of the market maker / broker
The terms of association of the Business introducer is determined by the Business introducer Agreement. The following services can be provided by a Business Introducer:
- Marketing and advertising services for soliciting clients Company and consequently introducing clients to the Company
- The services are restricted to introduction of clients and not to the reception and transmission of their orders or to portfolio management services
Company Business Expansion
- Once license is granted from the CySEC, it is possible to extend the license in order to offer additional investment services. i.e. a broker CIF can extend its license to become a market maker or to offer other services such as foreign exchange services.
- A CIF offering binary options can also offer Forex services without amending the license (and vice-versa)
- A CIF can be used as a bridge for access and easy setting up in other important EU financial markets (“Single EU Passport”), either through the establishment of a Branch or through Tied Agents or free provision of cross border services (see section 79 (1) of the Law.
For more information and guidance get in touch with our lawyers or email iMPK Global Business Law Firm – Cyprus Lawyers – Michalaki, Pitsillidou & Co. LLC, at email@example.com .Tel. +357 99345000 – Fax +357 25 660097.